Chinese house prices slip lower despite policy loosening

Prices of new houses in China edged lower in February despite a recent round of policy loosening designed to support the country’s crisis-hit real estate sector.

New home prices across 70 of China’s biggest cities were 0.13 per cent lower compared with the same period last month, according to calculations based on data from the National Bureau of Statistics of China.

The housing data have been closely watched following a nationwide real estate liquidity crisis, which was initially centred around the default of property developer Evergrande but went on to engulf a sector that contributes more than a quarter of economic growth.

The sluggish performance in February indicates that policy measures designed to support activity, including cuts to some of the country’s most important lending rates, have yet to ignite a recovery in the property industry even as more hopeful signs emerge for the wider economy.

China in January lowered its benchmark mortgage lending rate for the first time in two years, adding to a series of other cuts that together amounted to a cycle of easing following the real estate crisis.

The decision signalled a wider shift from policymakers, who in 2020 introduced measures designed to limit borrowing from real estate developers and later added restrictions on mortgage lending that preceded a wave of defaults.

Several developers including Evergrande defaulted late last year and the government has prioritised the completion of hundreds of their projects where homes are typically sold before they are built.

Goldman Sachs analysts said weighted average house prices increased after seasonal adjustments month on month but that this was driven by strength in higher-tier cities.

“This points to still strong downward pressure on the property sector in low-tier cities despite the modest easing in their local housing policies, due to weaker growth fundamentals than large cities, net population outflows, and still tight financing conditions for property developers,” they noted.

Separate data this week raised further concerns over the housing sector, given a 22 per cent fall year on year in residential housing sales by value in the first two months of the year. Real estate developers rely on sales of new homes to run their businesses and service their debts.

But wider data also highlighted better than expected performance elsewhere across China’s economy, for which the government has targeted growth of 5.5 per cent — its lowest goal in three decades.

Retail sales, a crucial gauge of consumption that has frequently struggled compared with other economic metrics throughout the coronavirus pandemic, leapt 6.7 per cent in February, far surpassing analysts’ forecasts of 3 per cent growth.